Millions of adults lack a retirement plan – here's how to get started

Millions of people admit they’re in the dark about their pensions, according to new research from the Money and Pensions Service (MaPS).

Around half of UK adults have no plan for their finances in later life – and many say they’re too confused or too busy to think about it.

Here, Which? looks at what the findings show and what you can do to feel more in control of your pension savings.

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Many savers lack confidence about pensions

Figures from MaPS to coincide with Talk Money Week (3-7 November) show that 22.5 million people say that they do not understand enough about pensions to make decisions. 

This is an extremely worrying figure given that people have much more personal responsibility for their retirement savings these days. 

The research also found that 10.7 million UK adults are too confused or too busy to think about their pension and half of adults also don’t have a plan for their finances in retirement.  

MaPs surveyed more than12,000 adults across the UK about how engaged they are with their pension savings. 

• Find out more: how to get pension advice and guidance for your retirement

Why pension decisions feel so complicated

Being unable to navigate the complex world of pensions could prove a huge problem for savers in the future. 

Since the pension freedoms were introduced in 2015, people no longer have to buy an annuity when they retire. But that freedom comes with a host of decisions about how to manage their money.

Pension savers will tend to have a defined contribution (DC) pension these days. The money that you and your employer pay in is invested, and the value of your pension when you retire depends on how much has been paid in, as well as how the underlying investments have performed.

From the age of 55 (rising to 57 in 2028) you can access your money with a DC scheme and will need to decide how to take an income from your pensions. There is the possibility to take up to 25% of the pot as a tax-free lump sum (up to a maximum of £268,275).

Then you’ll have to consider how to take the rest of your money. The main options are arranging an annuity, keeping it invested and withdrawing income when you need it (pension drawdown) or taking some or all of it as cash.

This will lead to questions about how much you should take, can you still build up your pension pot and the tax implications of the different withdrawal methods.

• Find out more: pension options: what can I do with my pension pot?

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Simple ways to get to know your pension

If you feel lost when it comes to pensions, there are some easy ways to start building confidence. 

Since 2012, employers have been required to set up a DC pension for you without you needing to ask to join under the auto-enrolment rules. 

This has added around 10 million more workplace pension savers (now in excess of 22 million) and means many people are having to understand how pensions work for the first time.

You should make sure that the contact details your pension provider(s) hold about you are correct.

It's simple to check – just log into your online account or dig out your latest pension statement. 

Ensure that you’ve nominated who your pension should go to when you die.  This can usually be done easily online via your pension provider’s website. 

It's an important bit of admin because defined contribution pensions are not part of your estate, so aren't covered by your will.

Consider how much is going into your fund. The minimum you have to pay into a workplace pension is 8% of your salary. This is made up of 5% from you (including pension tax relief from the government) and 3% from your employer. 

If you can afford to pay more than the minimum or make extra contributions from time to time – for example, if you get a bonus – this will make a big difference to your pot over the long term.

• Find out more: what happens to my pension when I die?

When it pays to get financial advice

If you’re one of the many people who don’t have a plan for retirement, you may need to turn to a regulated independent financial adviser.

Forking out for financial advice will be a barrier to some people. The FCA puts the average initial charge of advice at 2.4% of the amount invested, and you can expect ongoing fees of around 0.8%. 

Not paying for advice may prove a false economy. Your pension might be the biggest pot of money you ever need to decide what to do with, and the consequences of making the wrong decision can be drastic and lasting.

A comparison site can help you locate a financial adviser. Unbiased is a free-to-use service that enables you to ‘browse for a trusted professional near you’. It can connect you with independent, FCA-regulated financial advisers tailored to your needs. 

VouchedFor similarly has a directory of verified advisers, which it says are ‘all vetted, reviewed and monitored’, with feedback from real clients to help you compare and choose.

• Find out more: how to find a financial adviser

Free guidance if you don’t want to pay for advice

If professional advice isn’t an option, there’s still free, trusted help available.

The Money and Pensions Service offers free guidance in the form of a conversation with a pension expert on MoneyHelper via webchat, WhatsApp, or a phone call.

Alternatively, the Pension Wise service, which has just celebrated its 10th birthday, provides a more structured one-hour appointment for those over 50 with a defined contribution (DC) pension.

Pension Wise Digital allows you to start an appointment and pick it up again in your own time. 

Charlotte Jackson from the Money and Pensions Service is encouraging people to use Pension Wise: ‘Talking to a pension expert can reduce the confusion around pensions. The conversations don’t need to take long or be perfect, they just need to happen.’

She also shared three tips on how to approach a Pension Wise appointment:

• Don’t worry if you don’t know too much about pensions
• Dig out some information in advance if you can (eg type of pensions that you have and current value)
• Have an idea about what you want to get out of the session